Is
a catalog the right investment for your company?
Are you suffering from catalog envy?
Many distributors pour marketing dollars into catalog development,
hoping to look more like Grainger and McMaster-Car. For some
companies, however, it might not be a wise investment.
by Chuck Moyer
Since the 1970s, the catalog sector has
been one of the fastest growing segments in distribution, growing much
faster than the market overall. As a result, catalog companies have
taken at least a little bit out of just about every distributor’s
hide. The result is that many distributors have developed “catalog
envy” and either adopted or would like to adopt a catalog as part of
their growth strategy. For most distributors, this may not be the best
way to invest scarce resources.
To understand why, it’s important to
know the role of distributors and distributor catalogs in the supply
chain and how they are likely to evolve.
MRO or indirect purchases through
distributors easily exceed $300 billion a year, with an equal amount
of direct or OEM business going through distributors that focus on the
manufacturing sector. About 85 percent of this business is transacted
with more than 100,000 local and regional independent distributors,
with about 15 percent of the business going to the top 250
distributors.
Less than 5 percent goes to the players
we think of as catalog distributors, W.W. Grainger, McMaster-Carr, MSC
Industrial Direct, Newark Electronics, etc. Catalog distributors seem
larger than they are because their catalogs represent an amazing
amount of advertising or brand building. These players are universally
visible and — because they’ve taken a little out of every
distributor’s hide — most distributors are sensitive to them.
What many people don’t realize is
that the vast majority of purchases have already been sourced. In
other words, in most cases, what buyers are going to buy and who
they’ll buy it from has already been decided, at least down to a
short list of suppliers on a bid list. This is true of most stores or
crib purchases, direct material purchases and even the majority of
spot buys.
Once the source is determined, it is
difficult to make a change. The most compelling evidence of this is
that despite considerable pressure, distribution has not consolidated
to any appreciable degree. There are no $20 billion-plus distributors
in our sector. Even major buyers adopting e-procurement have run into
formidable barriers when they have attempted to switch large numbers
of purchases away from local suppliers.
It’s the fringe business — a subset
of spot buys — where catalogs bring a real advantage. But this
represents less than 10 percent of the total market.
There are two general types of
catalogs: master catalogs, or “big books,” and direct-mail
catalogs. A catalog can cover a wide variety of products, like
McMaster-Carr, or specialize, like Newark Electronics or Lab Safety
Supply. The function of a master catalog is to scoop up demand once a
customer knows what he or she wants or what problem needs to be
solved. These catalogs make up the majority of industrial catalog
sales.
Smaller direct-mail catalogs create
demand and function very much like the end-cap displays you see in
retail. These catalogs are great for introducing unique new products
or getting a customer to try a new supplier. As a rule, the most
successful industrial catalogers offer a broad, deep selection of
products from stock with fast delivery. For example, MSC Industrial
Direct provides better than a 99 percent fill rate on more than
half-a-million items across 60 commodity areas, with standard next-day
delivery to more than 80 percent of the United States.
To be a successful cataloger requires
the distribution, logistics and customer service infrastructure and
inventory to compete as well as a catalog company. If you look
carefully, you’ll see that the operating costs of most catalog
distributors are 25 percent of sales or more. This represents a
tremendous investment for a new entrant.
Conclusion: The decision to launch a
catalog is a decision to make a major investment to compete for the
smallest and most hotly contested ground in the industrial
distribution arena. This is not a segment where a small distributor
with limited means will likely succeed.
